Even though we first (half-jokingly) proposed that the erratic Elon Musk's endgame was to take Tesla private
exactly two months ago, we were as surprised as anyone to read the
tweet, and subsequent
staff email, describing a planned transaction at $420 a share.
We have many questions. for instance:
1. How does the debt of a buyout provide less pressure than the stock market?
There is quarterly reporting and an incentive for short sellers to trash talk the company on Twitter, but that surely pales in comparison to the pressure to maintain bank/ bond covenants and make interest payments.
2. If it isn’t debt, who can write that sort of equity cheque without debt somewhere involved?
“Funding secured” said Musk. There are a small number of sovereign wealth funds attached to non-democratic states, but still.
3. How do you finance $50bn(?) of new debt on a company with negative cash flow, big expansion plans and where analysts forecast a need for further equity raises?
4. How many banks would have to be involved in the syndicate for a bridge loan for a buyout like that, 30?
The largest previously was the when AB InBev borrowed $75bn, including $40bn of
bridge loans from 21 relationship banks, to fund the takeover of SABMiller.
5. Did Musk discuss this with the board before tweeting? There would have to be a fairness opinion behind the $420 mooted take-out price, right?
6. How can public shareholders remain investors in a “private” company?
Musk said in his letter that shareholders “can stay investors in a private Tesla or they can be bought out at $420 per share, which is a 20 per cent premium over the stock price following our Q2 earnings call (which had already increased by 16 per cent)”. He also seemed to suggest a fund structure similar to that at his rocket company, SpaceX.
However, the problem is an SEC rule that a private company cannot have more than 500 shareholders of record. The Securities and Exchange Commission would surely look straight through the pretence of a private company structure, wouldn't it?
7. Did he meet the bankers on the production line, as that’s where he says he’s been sleeping lately?
8. It's consensus that Tesla needs to sink $5bn-6bn on a Model Y production line next year, and $18bn for a dealer/sales network plus $2bn to $8bn for a charging network, by next decade. It's consensus that Tesla burns through the remaining cash by next year. In what way is cutting off access to equity markets positive to that circumstance?
9. Forbes reported in May that Musk, at the end of 2017, had 13.8m of his Tesla shares, around $5bn worth at pixel, pledged as collateral for margin loans to help fund his extravagant lifestyle. What terms will banks demand for collateral in an illiquid private company, rather than publicly traded shares?
10. If it wasn’t for the existence of maniacs fellow visionaries with bottomless pots of cash (
SoftBank and
MBS), this would be treated as the ravings of a lunatic, right?
Wait, is this about to be the world’s biggest ICO? It makes no sense with real money, but maybe a massive issue of Elons...
